Shrinking debt crucial to future US prosperity

Bob PapesMoney Matters

Published: Saturday, December 8, 2012 at 10:00 a.m.

Last Modified: Saturday, December 8, 2012 at 10:00 a.m.

There is so much talk in the media now about the fiscal cliff. While most people are aware of it, a lot of confusion exists as to what it really is and what it might mean. So here is a no political spin explanation, which should help clarify things.

The fiscal cliff is a combination of automatic big tax hikes and huge spending cuts. This combination was deemed to be so undesirable, that Congress would be forced to initiate longterm deficit reduction actions. These tax increases and spending cuts will trigger at the end of this year unless Congress does something about it.

So why are tax increases and spending cuts to reduce the deficit seen as a fiscal cliff? First of all, taxes also would increase on the middle class, which already is hurting with high unemployment and increased medical, gas and food costs. This, coupled with significant federal spending cuts, could send us into another recession if you believe we already are out of the last one.

The good news is that both Democrats and Republicans agree they want to avoid having these drastic measures implemented. The bad news is that they cannot seem to agree on an alternative.

So why is decreasing our deficit so important? Our current deficit is about $17 trillion. From 2009 to 2012 we generated more than $5 trillion of debt. The 2012 deficit is projected to be more than $1 trillion. Paying off the debt and the interest on our debt is becoming a bigger and bigger part of our budget.

This takes away from our ability to invest in needed infrastructure, science, research, clean energy, education, etc. When I took economics in college, it was called guns or butter. Pick one.

The major piece of our spending is entitlement programs such as Medicare, Medicaid and Social Security. Spending on defense also is huge. These programs make up about 64 percent of our total federal government spending. This means that if we do not cut spending money on these entitlement programs and defense spending, we would have to eliminate about 82 percent of our spending on everything else to balance our budget in our current economy. The other alternative is to start growing our economy like crazy.

While growth can generate a lot more revenue, the economic stimulus programs have not accomplished strong growth in GDP. One reason is that programs like infrastructure spending do not usually generate longterm employment.

If we do not start balancing our budgets and paying down our debt, we will be leaving our children and grandchildren a severe problem, which will do them a huge disservice. It is discouraging that our elected officials in Washington cannot seem to come together and do what is right for our country. Even if they strike an eleventh-hour agreement on the “fiscal cliff,” it would only be the first step to a long-term deficit reduction program. As I tell my clients, my definition of insanity is to continue to do the same things the same way and expect a different result.

Bob Papes is a local business expert and the author of two books, “Management During an Economic Crisis” and “Turnaround.” His email address is: www.rpapes@bellsouth.net.

<p>There is so much talk in the media now about the fiscal cliff. While most people are aware of it, a lot of confusion exists as to what it really is and what it might mean. So here is a no political spin explanation, which should help clarify things.</p><p>The fiscal cliff is a combination of automatic big tax hikes and huge spending cuts. This combination was deemed to be so undesirable, that Congress would be forced to initiate longterm deficit reduction actions. These tax increases and spending cuts will trigger at the end of this year unless Congress does something about it.</p><p>So why are tax increases and spending cuts to reduce the deficit seen as a fiscal cliff? First of all, taxes also would increase on the middle class, which already is hurting with high unemployment and increased medical, gas and food costs. This, coupled with significant federal spending cuts, could send us into another recession if you believe we already are out of the last one.</p><p>The good news is that both Democrats and Republicans agree they want to avoid having these drastic measures implemented. The bad news is that they cannot seem to agree on an alternative.</p><p>So why is decreasing our deficit so important? Our current deficit is about $17 trillion. From 2009 to 2012 we generated more than $5 trillion of debt. The 2012 deficit is projected to be more than $1 trillion. Paying off the debt and the interest on our debt is becoming a bigger and bigger part of our budget.</p><p>This takes away from our ability to invest in needed infrastructure, science, research, clean energy, education, etc. When I took economics in college, it was called guns or butter. Pick one.</p><p>The major piece of our spending is entitlement programs such as Medicare, Medicaid and Social Security. Spending on defense also is huge. These programs make up about 64 percent of our total federal government spending. This means that if we do not cut spending money on these entitlement programs and defense spending, we would have to eliminate about 82 percent of our spending on everything else to balance our budget in our current economy. The other alternative is to start growing our economy like crazy.</p><p>While growth can generate a lot more revenue, the economic stimulus programs have not accomplished strong growth in GDP. One reason is that programs like infrastructure spending do not usually generate longterm employment.</p><p>If we do not start balancing our budgets and paying down our debt, we will be leaving our children and grandchildren a severe problem, which will do them a huge disservice. It is discouraging that our elected officials in Washington cannot seem to come together and do what is right for our country. Even if they strike an eleventh-hour agreement on the “fiscal cliff,” it would only be the first step to a long-term deficit reduction program. As I tell my clients, my definition of insanity is to continue to do the same things the same way and expect a different result.</p><p>Bob Papes is a local business expert and the author of two books, “Management During an Economic Crisis” and “Turnaround.” His email address is: www.rpapes@bellsouth.net.</p>